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July 15, 2010

Johnson & Johnson Tylenol Quality-Control Report Due Today

by Sam Savage

Tylenol manufacturer Johnson & Johnson is expected to reveal its plan today for fixing quality-control issues that have led to multiple recalls of the pain medication over the past year, according to Thursday reports by Ransdell Pierson of Reuters.

The outline was promised to the Food and Drug Administration (FDA) back in May, and Pierson claims that it could bring into clearer focus exactly how severe the problems are.

"J&J has issued four major product recalls in the past year, and a number of smaller recalls related to them that have bewildered the public, tarnished the company's reputation and allowed rival brands to fill the vacuum," Pierson claims.

"They have also sparked a congressional investigation and intense FDA scrutiny," he adds.

According to Reuters, the largest recall took place on April 30, as the company was forced to pull 40 widely used children's medicines from store shelves. Johnson & Johnson warned that the Tylenol, Mortin, Benadryl, and Zyrtec medications might have contained too high of a concentration of their respective active ingredients.

"In a damning FDA report, inspectors said they found thick dust, grime and contaminated ingredients at the J&J plant in Fort Washington, Pennsylvania that produces the medicines," Pierson said. "J&J shut the plant and has said it is unlikely to reopen before the end of the year, as company executives and consultants attempt to fix the problems."

The FDA response to Johnson & Johnson's proposal will have a direct impact on the company's future, according to what Gabelli & Co. analyst Jeff Jonas told Reuters on Thursday.

"It is possible for it to reopen in early 2011, but that could be pushed back to mid-2011 if the FDA needs that long to conduct a full inspection and approve changes" at their factories, Jonas said, adding that the company was "somewhere in the middle of the process and will need to go back to the FDA toward the end of the year and request an inspection."

"In these situations companies have very little negotiating power--the FDA gets what it wants," added Mayank Gandhi, an analyst with Cowen and Co. "J&J needs to convince the FDA this is a top priority for the firm and that senior management are on top of it--and that they have the appropriate controls and organizational structure to resolve these issues and prevent them from happening in the future."

According to Pierson, "The most recent J&J recalls, on July 8 and June 15, involved a total of 3 million bottles of products--including Tylenol for children and adults and several forms of Benadryl and Motrin. The actions, small in relation to others in the past year, were related to J&J's recall on January 15 of 53 million bottles of widely used products due to musty or moldy odors."

Johnson & Johnson was founded in 1886 and is headquartered in New Brunswick, New Jersey. The company is a member of the Fortune 500, and despite its recent woes, has been recognized numerous times for its corporate reputation. They have topped the Harris Interactive National Corporate Reputation Survey on multiple occasions, were once named the most respected company in the world by Barron's, and was the first corporation awarded the Benjamin Franklin Award for Public Diplomacy by the U.S. State Department as a result of their funding of international education programs.